Leading innovation from within Introduction to IQE IQE the scaled - - PowerPoint PPT Presentation

Leading innovation from within

Needham Conference - January 2020

Introduction to IQE

IQE – the scaled global epitaxy leader

2 Our Sites and Technologies MOCVD MBE Substrates Wireless Photonics Cardiff, UK (HQ)

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Newport, UK

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Milton Keynes, UK

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Spokane, US

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Massachusetts, US

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Pennsylvania, US

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N Carolina, US

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Taiwan

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Singapore

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MOCVD = Metal Organic Chemical Vapour Disposition MBE = Molecular Beam Epitaxy

USA

Taunton, MA Greensboro, NC Bethlehem, PA Spokane, WA

Europe

Newport, UK Cardiff, UK àCSC Milton Keynes, UK

Asia

Taiwan Singapore àCSDC

Where we operate

Asia

30%

Americas

60%

Europe

10%

Wireless

Epi wafers for handset and telecommunications infrastructure.

Photonics

Epi wafers (lasers) for use in 3D sensing, fibre optic communications and military infra-red. Substrates for infra-red applications.

Our Business Units Headquartered in Cardiff, UK 2019 Revenue £136 to 142m 650 staff across 9 global sites Key Facts

Geographical Revenues

IQE is a materials specialist, supplying the entire market

Agnostic to winners and losers at the Chip and OEM level

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Wafer Production

Substrate Epitaxy process

Chip Fabrication Device Manufacture

IQE operates across diverse markets

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5G infrastructure 5G handsets 3D sensing in smartphones 3D sensing beyond the smartphone Lasers for commercial applications

• Global roll out of

base stations and small cells

• GaN on SiC
• GaN on Si
• Next generation,

high-efficiency Power Amplifiers

• Market entry into

Switches and Filters (BAW and SAW)

• Facial recognition
• ‘World facing’

cameras

• Structured Light

and Time of Flight (ToF)

• Consumer devices
• Commercial

applications

• LiDAR
• Next generation

lasers for fibre

• ptics (10G & 25G

DFBs, APDs and PINs)

• Military

applications

• Environmental and

health monitoring

There will be an inflection in demand for compound semiconductors driven by macro trends in the technology industry

IQE’s Business Model is scaling for mass production

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Delivering shareholder value Expanding margins and cash generation

Research & development New products Manufacturing capacity Customer qualification Mass production

High barriers to entry exist due to IQE’s IP Portfolio (both patents and know-how), lead times to create products and construct facilities and the process of customer qualification

Business Update

The speed of supply chain shifts from US to Asia has been rapid but highly disruptive in the short-term

Market Context

IQE is well placed to adapt to Global supply chain shifts resulting from Geopolitical tensions

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Expected weakness in handset market in H1 Geopolitical tensions have reduced volumes & created conservatism in supply chains IQE’s global manufacturing footprint and position as materials solutions provider, supplying the whole market, mean we are well placed to adapt As the macro trends

• f 5G and connected

devices play out, IQE remains uniquely placed to capitalise on an expanding market for compound semiconductors Foresight Conservatism Anticipated disruption Adaptable Well positioned

2019 represented a challenging market in an unprecedented geo-political context

Progress has been made to ensure the business is well-positioned for future growth opportunities

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Newport Mega Foundry constructed and now in production for existing large OEM plus a major chip customer in Android supply chain. Ten tools installed, capacity for 100 tools. Capacity expansion completed in Taiwan to enable 40% higher volumes,

• ngoing qualifications with major Taiwanese foundries

Closure of New Jersey (US) site and expansion of GaN capacity at Massachusetts (US) site Targeted cost reductions across the group completed Singapore JV (CSDC) bought back under 100% ownership to tackle Asian market opportunity and restructure cost base Credit facilities increased to £57m (year end net debt of £15-20m)

Revenue Evolution

Current guidance for 2019 is £136m to £142m with return to growth expected in 2020

9 114 133 155 156 136 2015 2016 2017 2018 2019 2020 2021 2022

GBP £’m Return to Growth Drivers in 2020:

• Wireless: US Chip Company volumes driven by 5G handset shipments; Expanding qualifications and volumes with

Taiwanese foundries

• Wireless: GaN on SiC volume increases for 5G infrastructure roll outs
• Photonics: VCSEL market expansion (existing large OEM content increases; Android Time of Flight (ToF) adoption)
• Photonics: Indium Phosphide opportunities in Asia (China 5G)

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2017: Initial VCSEL ramp 2018: VCSEL inventory correction 2019/20: Asian supply chain shifts Stabilisation = Moderate Growth Market opportunity growing at 25-30% CAGR driven by 5G and Connected Devices macro trends

Capex H1 FY19 and Outlook

5.7 12.2 6.3 24.1 19 H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19

Capex Cashflows £’m

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Cash used for capex

• Current expectation for FY19 is at the low end
• f full year guidance of £30m to £40m
• Capex for 2020 is expected to step-down

following the capacity expansion investment. Maintenance capex is in the region of single digit millions. There is sufficient capacity in the group to underpin 2020 growth scenarios. The decision on investment in the next five G4 reactors for Newport will be made in 2020 and be based on projections for 2021 revenue.

4.1 12.3 19.4 19.5 19.1 H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19

PPE Additions £’m Intangible Capitalisation

• £5.7m intangibles capitalised in H1 FY19

‒ £4.8m capitalised R&D ‒ £0.9m purchase of intangible assets

• Full Year Guidance of £10-15m reiterated at

the half year

Infrastructure expansion substantially complete

• Newport Mega-Foundry has 10 tools installed

with the next 10 cleanrooms nearing completion

• Taiwan expansion has increased site capacity

by 40%

• Future tool capex to scale for volume is

discretionary and linear with future revenue

• pportunity

Strategy and Technology Update

Healthcare Big Data Sensing LiDAR Connectivity

Portable Telehealth Monitoring Robotics and Automation Autonomous Driving Connected Vehicles Energy Generation LEDs Solar Energy Industrial Heating Office Communications Satellite Communications 5G Base Stations 5G Small Cell Networks Augmented Reality 3D Sensing Personal Devices Security WiFi Electrification Diagnostics High-Speed Data Centers AI Machine Vision Medical Imaging

Compound semiconductors everywhere

Smart Grids

Leading innovation from within

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5G Infrastructure Rollout:

• 5G Base Stations
• GaN on Si
• GaN on SiC

3D Sensing Proliferation:

• Low end smartphone
• Wearables / consumer devices
• Commercial and industrial

applications

• Quasi Photonic Crystal for module

integration

Major Growth Drivers for IQE

Potential addressable market growth of 25-30% CAGR over next 5 years

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Next 18 months Next 2 to 3 years Long Term

High Speed Datacoms:

• 10G & 25G DFBs

(Distributed Feedback Lasers)

• 10G & 25G APDs

(Avalanche Photo Diodes)

• PIN detectors

Asian Market Wireless Demand:

• Power Amplifiers

for handsets

3D Sensing Proliferation:

• Android Market

(High/Mid end)

• World-facing camera

(ToF)

Environmental & Health Monitoring LiDAR Connected Devices Smart Grids 5G Infrastructure Rollout:

• GaN for mm Wave / small cell networks
• Lasers for backhaul networks

5G Handset Opportunity:

• Filters and Switches (cREO)

3D Sensing Proliferation

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The 3D Sensing Market is set for Exceptional Growth

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2019 Next 3 to 5 Years Next 18 months

• One major OEM, all phones
• New OEMs, high-end

phones

• 3DS for Proximity sensing
• World Facing camera in

high-end Android

• Multiple OEMs with VCSELs

in volume products

• Android proliferation of 3D

Sensing

• Adoption in world-facing

camera

• Security authentication

standards drive adoption

• Cost reductions drive adoption in

even low-end smartphones

• Augmented reality applications

drive adoption

• More devices using VCSELs
• Higher power at safe wavelengths
• Automotive in cabin and

development of LIDAR

Timing has been hard to predict but there is consensus on a large market opportunity

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IQE’s Mega-Foundry enables large-scale mass production of VCSEL’s, leveraging a long heritage

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IQE Remains Number 1 in VCSELs

IQE’s Market position is a result of

• Reputation as the leading global supplier of advanced wafer products and material solutions
• Superior product quality, uniformity and yield = superior reliability and economics
• Established supply chain relationships
• Unique IP and Know-how accumulated over 30 years
• World-leading Research and Development capability
• Commitment to scale and investment in capacity
• Internal dual-source capability for certainty of supply

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IQE has a roadmap to stay No.1

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Manufacturing Platform

Increasing volume, lower unit cost

Wafer Size

Larger Die Size, lower cost per chip, opens up Si chip fab capacity

Emission Wavelength

Eye Safety, Higher Power for LIDAR

Integration and Miniaturisation

Lower unit cost per device, higher share for IQE, expands market opportunity

300 mm 200 mm 150 mm

High Speed Datacoms

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IQE DFB

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• DFB laser = Distributed Feed Back Laser
• Critical for fibre optic communications
• Fibre to the premises (FTTX)
• Data Centre
• Core network
• DFB wafers : Base + grating + overgrowth
• IQE historically provided Base epi only
• We have developed a disruptive technology for grating:
• NIL – Nano Imprint Lithography
• High perform (flexible), high throughput and low cost
• Further applications in VCSEL
• Multiple qualifications for “full service” wafers (2-3x value add)

Grating – viewed by Scanning Electron Microscope XX X X X X X X X X X X X X X X X X X X X X X X X X XXX Overgrowth Grating Base

5G Infrastructure Opportunity

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IQE’s 5G Infrastructure Opportunity

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Each element has its own T/R

5G Materials Choices

Si CMOS and SiGe require >10x the number of antenna elements relative to GaN

1kHz 1MHz 1GHz 10GHz

Frequency Voltage Rating

Inverters

(Motor controls, PV, UPS)

IT & Consumer Power Supplies EV / HEV Grid Wind Rail DC-DC Conversion CATV Infrastructure A&D 50V 200V 600V 1,200V

GaN uniquely positioned to address

• pportunities over unprecedented range
• f operating voltage and frequency.

IQE GaN Markets

GaN Power Electronics GaN RF

mmWave 5G

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1kHz 1MHz 1GHz 10GHz

Frequency Voltage Rating

50V 200V 600V 1,200V

GaN / GaN GaN/Si GaN / SiC

GaN/Si

and

GaN/SiC

GaN Power Electronics

IQE GaN Products

GaN RF

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GaN Market Size Continues to Expand

Source: Yole (2019)

2018 2024

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5G Handset Opportunity

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RF Front End & Connectivity Market (2018-2025)

Source: Yole (2019) 28

RF Front End & Connectivity Content

Source: Yole (2019) 29

RF Front End & Connectivity – IQE Addressable Content

Source: Yole (2019) 30

IQE’s Content Growth in Handsets

HBT PAs HBT PAs HBT PAs BiHEMT PAs BiHEMT PAs Proximity sensors 3D sensors

Face recognition

TOF sensors

Camera focus

Proximity sensors 3D sensors

World facing / AR-VR

TOF sensors

Camera focus

Accessory sensors 3D sensors

Face recognition

Integrated optics

VCSEL/DOE/WLO

SAW & BAW Filters 5G mm wave Porous Si Switches

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